U.S. downgrade seen as upgrade as $4 trillion debt dissolved

Downgrade Rejected

Even with last week’s increase and the jump in marketable Treasuries outstanding since 2007 to $10.8 trillion from $4.5 trillion, 10-year yields are down from 2.56 percent when S&P cut the U.S. one step to AA+ on Aug. 5, 2011. Egan-Jones Ratings Co. has downgraded the nation three times since July 2011, assigning it a AA- ranking on Sept. 14. Moody’s Investors Service said it may follow suit next year if the government can’t decide on a plan to reduce federal debt to GDP.

Downgrading the U.S. is premature when the two-thirds of American debt that is private is shrinking, according to Jim Vogel, head of government agency-debt research at FTN Financial in Memphis, Tennessee.

“When one trend goes counter to the only one that they seem to be looking at, that throws up a flag,” Vogel said in a Sept. 27 interview in reference to the ratings firms. “If private debt is getting on a much firmer credit foundation, why do we have a 2013 deadline for one of the thorniest fiscal problems of an entire generation?”

Fiscal Cliff

The U.S. faces a so-called fiscal cliff of $1.2 trillion in mandated spending cuts and tax increases starting Jan. 1 if Congress can’t agree by Dec. 31 on ways to reduce the deficit.

America’s ability to weather the potential drop in fiscal stimulus and rise in taxes improved last week, as the Labor Department said unemployment fell to 7.8 percent in September, the first time it was below 8 percent since January 2009.

A Pew Research Center survey of likely voters conducted Oct. 4 to Oct. 7 gave Republican nominee Mitt Romney a four- percentage point lead over President Barack Obama. A Gallup poll of registered voters Oct. 1 to Oct. 7 showed Obama advancing over Romney by five points one day after, in a shorter tracking survey of three days immediately following their Oct. 3 debate, it called the race a tie.

“We’re seeing a good debate for Romney, a good jobless number for Obama and I don’t think that fundamentally changed the race,” said Evans Witt, chief executive officer of the nonpartisan Princeton Survey Research Associates.

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